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Self-Dealing Trustee

Self-Dealing Definition

For the State of California, the Self-Dealing definition includes trustee actions that allow them to benefit with little regard for the beneficiaries. It is a criminal breach of fiduciary duty. 

Probate Topics, Probate Litigation 



Self-Dealing Definition

For the State of California, the Self-Dealing definition includes trustee actions that allow them to benefit with little regard for the beneficiaries. It is a criminal breach of fiduciary duty. A self-dealing trustee benefits, directly or indirectly, from either purchasing or selling trust assets. An action of self-dealing is subject to a civil claim. Self-dealing is not always intentional. In cases where the trustee is also a beneficiary, self-dealing can occur accidentally. The Courts will require the trustee to pay back the Trust. They will also remove and replace the trustee. If someone accuses you of self-dealing, you need to obtain counsel from a trust lawyer. 

What Is Self-Dealing In A Trust?

Several different trustee actions fit the crime of self-dealing. Any trustee action that benefits the trustee but not the beneficiaries are self-dealing. A trustee requirement is to administer the Trust with the best interests of the beneficiaries. 

Since a trustee can also be a beneficiary, actions that seem out of order, Self-dealing actions include:

  • Trustee giving themselves gifts from the Trust. If the trustee removes assets from the Trust without permission from all the beneficiaries, it is self-dealing. This applies to situations where a trustee buys an investment from the Trust without consent. 
  • The trustee takes personal loans from the Trust. It is illegal for the trustee to borrow money from the Trust for personal benefit.
  • Invests trust monies in investments that only benefit the trustee. Decisions regarding investments and asset liquidation should benefit all of the beneficiaries. 
  • Pays themselves too much compensation from the Trust. Under California law, the trusts pay only a small compensation payment to the trustee.
  • Diverts funds from the trust account into their personal accounts. You can never mix trust funds with your personal funds during the trust administration process.
  • Any other action that provides the trustee with more significant profits than the beneficiaries.

How To Avoid Self-Dealing

An inexperienced trustee may have the best of intentions when they breach their fiduciary duties. Many believe that they are helping the Trust by selling an asset to themselves. Sometimes a trustee does not understand the weight of their trustee appointment. If you do not know how to carry out the responsibilities of the instrument of Trust, a trust lawyer can help. You need to understand that owning a Trust and independently changing it are separate things. You can only change an irrevocable trust through a court order. There are times where the Trust is unclear. Sometimes there are exterior influences while the Trust is being drawn that will nullify the trust instrument. While it might seem easy to benefit from the Trust, court oversight is strict, and the courts will catch the errors. If someone suspects you are self-dealing, they file a civil claim. If there is a large estate, the court might decide that criminal charges of fraud or extortion are more appropriate. 

Errors In The Trust Instrument

Other issues that you may run across in the trust document are related to actions taken before the Trust is filed. Trust grantors are often elderly, and errors or fraud are often missed. When someone finally discovers these issues, the people who have legal standing petition the court for changes. Some of the other problems that occur in a trust are:

  • Undue influence. An outside party convinces the grantor to make changes that will benefit them. They might take items from the estate or convince the grantor to rewrite the Trust. 
  • Unsigned Trust. There are times when the Trust slips through without a valid signature. If the document is not correctly notarized, it is also considered unsigned.
  • Lack of mental competency. If the grantor showed signs of dementia, there might be amendments that change everything. The new Trust might ignore beneficiaries who are rightful heirs. 

Seeking Legal Counsel

It is in everyone’s best interests for the trustee to seek legal counsel throughout the trust administration process. A Trust lawyer can help a trustee understand the weight of their responsibilities. They can explain what is self-dealing in a Trust. They can explain the rules beyond the self-dealing definition. They can also give you tips on how to avoid self-dealing. Trust lawyers should be available from the moment that you sign the acceptance forms. If you have never been a trustee, your trust lawyer can guide you through the details of the Trust. Any communications to the court should go through your trust lawyer. Once you understand the language of the Trust, it will be easier to abide by it. Being a trustee can be a lot of work. It can take up a lot of your time. If you stay focused on what is best for the beneficiaries, you should avoid self-dealing behavior.

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